Aircraft: PA-44 SEMINOLE/TURBO SEMINOLE
Phase of flight: Landing
Anomaly: Inflight Event / Encounter CFTT / CFIT; Inflight Event / Encounter Unstabilized Approach

This morning I was on a routine training flight with a multiengine commercial student. We were working on [a] lesson; which is the last flight before the stage check and is a review of all of the maneuvers from the course. At the end of the flight; we were working through a simulated engine failure after lift-off. This means that we had taken off from 17L; and I had simulated an engine failure for her by retarding the throttle on the left engine at approximately 600 FT AGL. We flew the circuit around the traffic pattern with standard procedures; however the gear down had been delayed due to aircraft performance while flying on one engine. As a note; the gear warning horn sounds the entire time that the throttle is retarded below approximately 14' manifold pressure. So the gear warning horn had been sounding the entire time we were in the traffic pattern. As the student was coming in to land; I was focused on her directional control and runway distance being used during her flare.As she rounded out and the aircraft started to settle; we began to notice it felt slightly lower than usual; and began to hear metal scraping noises at that time. When we heard the noise; the student released the controls and began screaming; 'oh my gosh; oh my gosh!' With the airplane being in a nose-high attitude; we thought it was the tailskid and the bottom comm. antenna that were scraping and did not notice any reduced engine performance. Because the airplane had not settled; I took the controls the moment I heard the metal scraping noise and added power for a go-around. As we lifted off; there was no perceivable degradation in performance; so we continued to climb...assuming we had just scraped the tailskid or maybe a small aft portion of the fuselage. The moment the metal scraping noise stopped; there were no indications in the cockpit that there had been a propeller strike. There was no extra vibration and all instrument indications were otherwise normal. I flew the airplane around the traffic pattern; ran the checklists as normal; verified all engine indications and landing gear down indications; and landed the airplane. We did not declare an emergency or require assistance since we did not initially suspect substantial damage and there was no perceivable degradation in performance. As I taxied back in I pulled directly up to the maintenance hangar and shutdown the airplane. It was as we reduced the power during shutdown that I noticed a color change in the tips of the propeller arcs and realized we had most likely struck the props. Upon shutdown; we exited the airplane and were met by mechanics to survey the damage.During the damage survey; maintenance took photos and we discussed the event. I then proceeded to call the Tower to check in and see what we needed to do for them and provide any additional information they needed. From that point; Maintenance took control of the aircraft and I proceeded; with the student; to our Department Chair's office to debrief the situation and initiate the necessary protocols for the school. While in their office; I double-checked NTSB 830 to verify that we did not require an immediate notification (which we did not); and then the student and I proceeded to Human Resources to accomplish the required drug screening. During a training flight with a simulated engine failure; the pilots neglected to extend the landing gear; but were able to go around after minimal contact with the runway. The gear warning horn sounded the entire time prior to the go-around as the throttle was retarded to simulate zero thrust.